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Citizens Electoral Council of Australia

Media Release Thursday, 22 February 2018

Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: cec@cecaust.com.au
Website: http://www.cecaust.com.au
 

CEC’s response to Treasurer’s ‘talking points’ on passage of APRA bail-in law

The outpouring of public fury at the passing of the APRA crisis resolution powers bill, and at the underhanded way it was passed, has forced Treasurer Scott Morrison to issue a new “form letter” to government MPs, with talking points to justify the government’s actions. Following is the form letter, with the CEC’s response to each point.

Morrison: Thank you for your representations concerning the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017, which passed in Parliament on 14 February 2018. The Bill was listed in the Senate Order of Business, as all Bills are, and every Senator had the opportunity to debate, move amendments and vote on the Bill if they so choose.

CEC: This shows the government’s defensiveness at the public’s obvious shock that a bill could be snuck through parliament with just seven senators present to vote in the Senate, and probably even fewer MPs present in the House. They are hiding behind the letter of the law, but flouting the spirit, because it turns out that what they did was technically legal. Many people have questioned the lack of a quorum, which is 19 senators, but it so happens that under parliamentary rules, a quorum is only necessary if someone present says “nay”, and the vote goes to a division. That is shocking, but it is a convenient rule for such purposes. We have witnessed a live demonstration of just how undemocratic parliament can be, belying its Westminster heritage, which is a parliamentary system that has evolved, yes, but always with a view to preserve the power of the ruling elite.

There is evidence, however, that those in the major parties who were determined to pass this bill, pulled a number of dirty tricks to ensure their MPs weren’t paying attention. An ALP source has revealed that the party leadership did not make a submission to the ALP caucus meeting on the bill. A caucus submission is standard procedure for all legislation, so MPs know what is coming up for vote, and can discuss how they should vote. The other dirty trick was ensuring the bill was rushed through while One Nation senators weren’t present in the chamber, knowing they intended to move an amendment to exclude deposits from the law.

Morrison: The legislation does not implement any sort of ‘bank bail-in’ policy that would allow the seizure of deposits in times of financial instability. The Government has no intention of implementing such a policy. Rather, the Government has a number of strategies in place to ensure the safety of deposits.

CEC: The government’s oft-repeated reassurance is not backed up by the wording in the legislation, which does not explicitly state deposits can be bailed in, but it is worded so broadly as to ensure they are not excluded from a bail-in in some future crisis, if APRA deems it necessary for international “financial stability”.

Morrison: Depositors are protected by the Government’s Financial Claims Scheme (FCS), which guarantees deposits up to a cap of $250,000 per person, per authorised deposit-taking institution (ADI). A wide range of deposits are covered under the FCS, including term deposits, savings accounts, call accounts, pensioner accounts, trustee accounts and retirement savings accounts. While the Government retains discretion to activate the FCS when an institution fails, this discretion is underpinned by the Government’s ongoing commitment to protect depositor interests, a commitment which the Government takes very seriously. (Emphasis added.)

CEC: This is a huge admission by the Treasurer, which confirms Dr Wilson Sy’s charge that deposits are not actually guaranteed right now, but require the government to first “activate” the FCS, which it may only do when an institution fails. The whole purpose of bail-in is to stop an institution from failing, so a bail-in could happen well before the government decides to activate the FCS, rendering it moot. Note that Morrison’s assurance that the government will activate the FCS amounts to “trust us—we have your best interests at heart”.

Morrison: In addition, depositors’ claims are explicitly protected by the Banking Act 1959. In the unlikely event of a bank failure, Australian depositors have priority claim on the assets of a failed ADI, to the extent that depositors have not already been paid out under the FCS. This is known as ‘depositor preference’ and has been a long-standing feature of Australia’s financial system.

CEC: Again, depositor preference only applies when an institution is being wound up, which a bail-in is intended to avert. Secondly, depositor preference is not preference above all other claims, but only above those of other “unsecured creditors”. With Australia’s banks so exposed to property speculation and trillions in derivatives, it is unlikely that a bankruptcy will leave anything for the secured creditors, let alone the unsecured creditors.

Morrison: ADIs are also intensively supervised by the Australian Prudential Regulation Authority (APRA). APRA’s statutory objectives include both protecting the interests of depositors and promoting financial system stability in Australia. While it is suggested that these objectives may be conflicting, in the case of the failure of an ADI, the objectives of protecting depositors and promoting financial system stability would be very closely aligned. It is highly unlikely that there would be circumstances in which taking action that adversely affects the interests of depositors would be conducive to promoting financial stability in Australia.

CEC: Note he says “highly unlikely” that taking deposits would promote financial stability. How about “absolutely certain that it won’t”? Although only a slight equivocation, it is enough to show you that the government accepts the logic of bail-in, which, the CEC can’t emphasise enough, IN EVERY OTHER JURISDICTION INCLUDES DEPOSITS!

Also, it is a bald-faced lie that APRA “intensively” supervises the banks. This has been revealed by numerous former APRA employees, who have blown the whistle on APRA’s collusion with the banks, and its self-styled role as a “shepherd, not a policeman”. Former APRA principal researcher Dr Wilson Sy points out that APRA does not even have a research department anymore—they are not interested in detecting the real risks that the banks are building up in the financial system.

Morrison: As certain examples from the global financial crisis demonstrated, retaining the confidence of retail depositors in a crisis is crucial to minimising wider contagion affects [sic] across the banking system. Where attempts were made to impose losses on depositors, such as in the case of Cyprus, this led to severe contagion impacts which effectively undermined the whole financial system. This show [sic] that the pursuit of financial stability in a crisis is likely reliant on the protection of deposits; the objectives are complementary rather than in conflict.

CEC: Again, why use the word “likely”? Why not: “This shows that the pursuit of financial stability in a crisis is absolutely reliant on the protection of deposits...”? Assuming he is sincere, Morrison may think the Cyprus bail-in undermined the financial system, but the financial authorities in the EU did not, and in fact they declared that Cyprus would be the “template” for banking resolutions in all of Europe, which it is, in the EU’s Bank Recovery and Resolution Directive (BRRD) bail-in regime. The problem for Australians is it doesn’t matter how Morrison feels personally, because he accepts the Bank for International Settlements’ demand that the government must not interfere with the regulator, and so APRA, not the government, will call the shots in a crisis.

Morrison: The legislation further strengthens depositor protections by reforming and updating APRA’s resolution powers, and by amending the definition of ‘prudential matters’ to explicitly reference protection of the interests of depositors. This will in turn strengthen APRA’s powers to manage the failure of an ADI in an orderly way in order to protect the interests of depositors.

CEC: There is a difference between protecting the “interests” of depositors, and protecting deposits. APRA could argue that it is in the interests of depositors for their bank not to go bankrupt, to justify taking a portion of their deposits—known in Europe as a “haircut”—to keep the bank afloat. For instance, the Reserve Bank of New Zealand (RBNZ) makes this precise justification for its Open Bank Resolution system which explicitly bails in deposits. “A primer on Open Bank Resolution” published in the RBNZ’s September 2011 “Bulletin” stated that taking deposits provided “a way to minimise the disruption that would occur to customers and the wider economy from the closure of a bank”. The government will say NZ is a different jurisdiction, but Australia’s major banks own NZ’s banks, and in 2010 Australia’s financial authorities signed an agreement with their NZ counterparts to coordinate a response to a banking crisis. The agreement stated: “For systemically important banks, the participants [both countries’ regulators] will explore options for an open resolution of the parent and subsidiary banks that are most likely to be conducive to maintaining stability and international confidence in the financial systems of both countries, and will advise their respective Governments accordingly.” Note, there is no mention of protecting deposits, only stability and “international confidence”.

Conclusion: The government is desperate to deflect the public rage over this bill, while still ensuring that Australia toes the line of the Bank for International Settlements-Financial Stability Board global bail-in regime. Their assurances are flimsy and not to be trusted. The only recourse Australians have is to fight for a Glass-Steagall separation of banks with deposits, from all other financial services and all forms of speculation.

Click here for a free copy of the CEC’s pamphlet, Glass-Steagall Now!

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